1031 Exchange Law & Legal Definition

1031 exchange is an exchange, i.e. sale and reinvestment of the proceeds there from, of business or investment property for other business or investment property, which allows a seller to defer payment of capital gains taxes.

For example, "the exception stated in Section 1031(a)(2)(A) clearly excludes property held primarily for sale from tax-deferred treatment under Section 1031. Per this section, the owner of property held primarily for sale cannot use that property in a Section 1031 exchange and qualify for tax-exempt status. [Callicutt v. Prof'l Servs. of Potts Camp, Inc., 974 So. 2d 216, 219 (Miss. 2007)"]